Charles Craig

NEW YORK _ Chiron Corp.'s CEO Edward Penhoet actedsurprised Monday when he heard the word "cushion" used todescribe the $1.2 billion in new cash his company stands to reapfrom its partnership with Ciba-Geigy Ltd.

"I haven't heard it called that before," he said. "If it's a cushion, wecertainly don't expect to sit on it."

Penhoet, speaking to investors at a New York conference organizedby Robertson, Stephens & Co., of San Francisco, said theEmeryville, Calif.-based Chiron intends to be an active player in thecontinuing consolidation of the cash-starved biotechnology industryby acquiring small companies or expanding alliances.

He said Chiron negotiated and completed "10 deals" in the past yearwith smaller firms and those companies, many possessing what hedescribed as undervalued stocks, could be among the merger targets.

He added that, of the 10 collaborations, the most substantial werestruck with the following six small biotech companies: CephalonInc., of West Chester, Pa., Cytomed Inc., of Cambridge, Mass.,DepoTech Corp,. of La Jolla, Calif., Ligand Pharmaceuticals, of SanDiego, Ribozyme Pharmaceuticals Inc., of Boulder, Colo., andViagene Inc., of San Diego.

Penhoet's aggressive posture is made possible by a $2.1 billion dealhis company and Ciba-Geigy announced on Nov. 21. The Basel,Switzerland-based pharmaceutical corporation is paying $117 pershare for Chiron stock to gain a 49.9 percent interest.

In addition, Chiron gets access to another $1.2 billion throughresearch and development funds from Ciba-Geigy, loans and futureequity investments.

The funds, Penhoet said, will give Chiron the opportunity to expandits four major product areas: diagnostics, vaccines, therapeutics andophthalmics. With the Ciba-Geigy deal, he added, "We have theresources to make major strategic moves."

Penhoet said Ciba-Geigy supports Chiron's expansionist vision andthe partnership does not restrict Chiron from acting on its own.

"We are preferred partners," he said, "not exclusive ones."

Penhoet and Ciba-Geigy's chief financial officer, Rolf Meyer,presented a united front Monday in discussing the nature of theiralliance.

Penhoet described the partnership as essentially a "50-50 ownershipstructure" coupled with a "real desire to cooperate with each other."

Meyer said Ciba-Geigy last spring began considering alternativesfor strengthening its drug research and development capabilities.Biotechnology, Meyer said, was recognized as "critical for the futureand critical to achieving success for innovation."

Penhoet said Ciba-Geigy initiated the discussions on expanding theirexisting collaborations, which date to the early 1980s.

"This transaction was not sought by Chiron," he said, adding thatChiron will remain independent and responsive to "two bosses,"Ciba-Geigy and Chiron shareholders.

"We did not do this transaction as a buffer between ourselves andWall Street," Penhoet observed.

In addition to paying $117 per share to acquire 11.9 million Chironshares, Ciba-Geigy is trading its ownership in two companies foranother 6.6 million shares.

With full ownership of Massachusetts-based Ciba CorningDiagnostics and Biocine Co. _ a joint venture established by Chironand Ciba-Geigy in 1986 _ Chiron's estimated annual sales willbreak the billion dollar mark.

The Chiron-Ciba agreement prevents Ciba-Geigy from buyingadditional Chiron shares for five years, after which Ciba can increaseits ownership to 55 percent through the purchase of shares on theopen market. n

(c) 1997 American Health Consultants. All rights reserved.